Appointment of Managerial Personnel Analysis Part-I

BASIC UNDERSTANDING AND DEFINITION OF MANAGING DIRECTOR, MANAGER AND WHOLE TIME DIRECTOR

1.      Managing Director [Refer Section 2(26)]

In terms of section 2(26), a managing director means a director who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of directors or by virtue of its Memorandum or Articles, is entrusted with substantial powers of management which would not be otherwise exercisable by him, and includes a director occupying the position of managing director, by whatever name called.

Analysis of the definition of the Managing Director is as under:—

(a)  he must be a director of the company;

(b) he must be entrusted with substantial powers of management, which would not otherwise be exercisable by a director;

(c) the powers of management may be entrusted with the managing director by:

i. an agreement or

ii. a resolution passed at a general meeting by the members or

iii. a Board meeting or

iv. the Memorandum or

v.  the Articles of Association of the company;

(d) the powers of management entrusted with a managing director must be exercised by him subject to the superintendence, control and directions of the Board;

(e) a person who occupies the position of the managing director even without being designated as such would also be deemed to be a managing director.

2.      Definition of "Manager" [Refer Section 2(24)]

Section 2(24) of the Companies Act, 1956 defines the term 'Manager', means an individual who, subject to the superintendence, control and direction of the Board of directors, has the management of the whole, or substantially the whole, of the affairs of a company, and includes a director or any other person occupying the position of a manager, by whatever name called, and whether under a contract of service or not.

3.      Meaning of "Whole-time Director" (Important)

As per the explanation under section 269 of the Act, a whole-time director includes a director in the whole-time employment of the company. In other words, a director who devotes his whole time to the affairs of a company is called a whole-time director of the company. A whole-time director of a company cannot accept the position of a whole-time director in other companies, though he may accept office of non-whole-time director in other companies subject to the limits imposed by section 275 read with sections 277 and 278.

Pre-condition - A person must be a Director for being appointed as a MD or WTD

A person cannot be appointed as a managing director or whole-time director, unless he is already a director in the company. Holding of office of director is a pre-condition for holding of office of managing or whole-time director. Even if the approval of the Central Government has been obtained for appointment of a person as managing or whole-time director, the requirement of holding of office as a director cannot be dispensed with.

Course of Action where the person proposed to be appointed as managing or whole-time director is not a director

If a company intends to appoint an individual, who is not a director of the company, as its managing or whole-time director then he shall have to be first appointed by the Board as an additional director under section 260 of the Companies Act, 1956.

Position where Additional Director is appointed as a managing or whole-time director

If additional director of a company had been appointed as the MD or WTD, the later appointment also ceases simultaneously with the cessation of his directorship at the commencement of the AGM. However, if such a person is re-elected as full-fledged director at the annual general meeting and thereby he continues as a director of the company, he shall continue as a MD or WTD also for the period for which he is so elected by the annual general meeting.

Compulsion to appoint a managing or whole-time director or manager (Section-269)

As per section 269(1), a public company or a private company which is a subsidiary of a public company, having a paid up share capital of rupees five crores or more shall have a managing or whole-time director or manager.

Therefore, a private company is not statutorily required to have managing or whole-time director or manager.

APPOINTMENT OF MANAGING DIRECTOR, WHOLE-TIME DIRECTOR & MANAGER WITHOUT APPROVAL OF THE CENTRAL GOVERNMENT

Appointment of managing director in case of private limited companies

The appointment of managing or whole-time director or manager is not mandatory in the case of independent private companies. However, an independent private company can appoint them in accordance with the provisions contained in the Articles of Association. If Articles of the independent private company do not have the above power then the Articles will have to be first altered u/s 31 of the Companies Act, 1956.

Provisions in Articles relating to the appointment of a manager

Regulations 82 contained in Table A of Schedule I come into operation in case of companies limited by shares if these are not excluded or modified by the Articles of these companies. Appointment and remuneration of manager in the case of an independent private company will be governed by the relevant regulations contained in the Articles of the company.

Director may also be appointed as a manager

A director of a company may also be appointed as its manager. If he ceases to hold office of director then his office of manager will not come to an end and he will continue to hold the office of manager of the company as per terms of his appointment.

Modes of appointment in a public company or a private company, which is subsidiary of a public company

Section 269 discusses two modes of appointment of a managing director. These are:—

(i) Appointment without the approval of the Central Government (appointment in consonance with the provisions contained in Schedule XIII); or

(ii) Appointment with the approval of the Central Government.

Company may have more than one managing director

A company, may, have more than one MD such as the MD (Finance), MD (Administration), etc. Reason behind this is the MD of a company may be entrusted with substantial power of management but not necessarily to give the whole or substantially the whole of the affairs of a company.

Company cannot have more than one manager

A company can have only one manager. The logic behind this is that only one individual can have the management of the whole, or substantially the whole of the affairs of a company.

DISQUALIFICATION OF MANAGING OR WHOLE-TIME DIRECTOR

Section 267 provides that a company shall not appoint or continue the appointment or employment of, any person as its managing or whole-time director who:—

(a) is an undischarged insolvent, or has at any time been adjudged an insolvent;

(b) suspends, or has at any time suspended, payment to his creditors, or makes, or has at any time made, a composition with them; or

(c) is, or has at any time been, convicted by a Court of an offence involving moral turpitude.

Other Disqualifications for being appointed as a managing or whole-time director

(a) Only an individual can be appointed as a managing or whole-time director and a body corporate, association or firm not allowed.

(b) Undischarged insolvent, fraudulent person can not to be appointed as a managing or whole-time director. Also refer section 202(1) and Section 203(1)

In case of managing or whole-time director, disqualification is visited and takes effect as soon as conviction is recorded by a competent court. Where subsequent to order of conviction by a criminal court a person was appointed as the Managing Director of the company, it was held that the company had committed an infraction of mandatory prohibition contained in section 267. [Rama Narang v Ramesh Narang (1995) 4 SCL 150 (SC)]. For disqualification for a person to be appointed as a manager refer Section 385.

Prohibition on appointment of both the managing director and manager at the same time (Section 197A)

A company shall not appoint or employ at the same time both a managing director and a manager. Section 197A makes prohibition on appointment or employment of certain different categories of managerial personnel at the same time. The prohibition is applied to both a public company and a private company.